Monday, October 11, 2004

The Senate approved a corporate tax bill yesterday that creates $140 billion in new breaks and seeks to end a trade fight that is damaging U.S. exports to Europe.

The Senate voted 69-17 in favor of the bill four days after its easy approval in the House. Senators had held up the bill over issues related to tobacco regulations and special credits for companies employing National Guardsmen and military reservists, but finally agreed to terms for a vote in a rare Sunday session, and then cast their ballots on Columbus Day.

The bill now goes to President Bush. The White House has indicated he will sign it.

The Senate yesterday also approved $14.5 billion in aid for hurricane-damaged and drought-stricken states, and $32 billion for homeland security. The hurricane aid was attached to a $10 billion military construction spending bill.

The House approved the two bills Saturday, and the Senate signed off with a voice vote, sending the measures to Mr. Bush’s desk.

Neither Democratic presidential nominee Sen. John Kerry of Massachusetts nor Sen. John Edwards, North Carolina Democrat and his running mate, voted yesterday.

Senators now can adjourn until after the Nov. 2 election.

At the core of the corporate tax bill is the repeal of export subsidies worth $50 billion over 10 years, and their replacement with $76.5 billion in cuts for U.S.-based “production” and $42 billion to reduce taxes on overseas operations of American firms.

The legislation includes a long list of narrowly focused provisions — from lower duties on imported ceiling fans to funding for shopping mall construction — and attempts to pay for them by closing loopholes and raising some fees.

“In fact, this bill represents the most comprehensive attack on tax shelters since 1986,” Sen. Charles E. Grassley, Iowa Republican and one of the bill’s authors, said before the final vote.

The bill stems from a 2002 World Trade Organization ruling that said U.S. export subsidies are illegal. The decision allowed the European Union to slap duties on American exports. Sanctions rose to 12 percent in October on an estimated 1,600 U.S. products, pricing many out of the 25-nation market.

Congress hopes that punishment will soon end, and that U.S. companies will benefit from tax relief.

Manufacturers, corporate farms, oil- and gas-extraction operations, architects and engineers, builders and other companies engaged in broadly defined “production” would benefit through a tax deduction that effectively lowers the corporate rate from 35 percent to 32 percent.

The overseas operations would benefit through simplification of some rules and a tax holiday on income repatriated from overseas.

“There is a great deal of good in this bill. We can rescue the manufacturing sector. We can end EU sanctions. … And we can shut down every known tax abuse,” Mr. Grassley said.

The European Union had complained that instead of ending the export subsidy immediately, the legislation phases it out over several years. EU Trade Commissioner Pascal Lamy said the bloc would study the transition period but added that he was “pleased that Congress has finally taken this step toward U.S. compliance with the WTO ruling.”

The bill also saw a series of add-ons unrelated to the original WTO case, including provisions benefiting NASCAR track owners, native Alaskan whalers and tobacco farmers. The grab bag drew ridicule from a handful of lawmakers.

“On issue after issue in this legislation, elite corporate interests are the winners at the expense of average Americans,” said Sen. Edward M. Kennedy, Massachusetts Democrat.

The tobacco provisions dramatically alter rules governing crop production. Since 1938 farmers had worked under a system of quotas that limited where and how much tobacco could be grown.

Those production quotas — which could be rented, bought, sold or inherited — were thrown out in return for a $10 billion buyout.

Several senators tried to attach the buyout to proposed Food and Drug Administration rules that would regulate tobacco manufacturing and marketing, but House leadership blocked the FDA provision.

“Our FDA provision would have made a real difference … it would have saved lives,” said Sen. Mike DeWine, Ohio Republican and a proponent of the new rules. Mr. DeWine called the buyout without the FDA package a “disgrace.”

Sen. Mary L. Landrieu, Louisiana Democrat, pressed for a tax credit to employers that make up the pay their employees lose when they are called to active duty in the National Guard or Reserve.

Her measure, which delayed the legislation, was eventually adopted separately but is expected to die in the House. Senators also approved separate bills on tobacco regulation and overtime rules, but House lawmakers are likely to reject them.

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